George Soros, who famously bet against the Bank of England on Black Wednesday in 1992, yesterday warned that Britain could follow the United States into recession.

As he did so, the head of the Organisation of Economic Cooperation and Development said the Bank of England and European Central Bank should cut interest rates to prevent their economies suffering the same sort of slowdown that on Tuesday prompted the Federal Reserve to make the biggest cut in US interest rates for a quarter of a century.

Speaking at the World Economic Forum in the Swiss resort of Davos as stockmarkets resumed their downward march, Soros said it would be "very difficult" to avoid recession in both the US and the UK. The Fed had cut rates in a bid to prevent the US tumbling into a major depression.

Britain, the Hungarian-born financier argued, was particularly vulnerable because of the large share of the economy accounted for by the City, which is already suffering from the turmoil in financial markets and where jobs are already being lost.

"London as a financial centre looms larger than New York as a financial centre in the US. In that sense, a bigger adjustment is facing the UK.

"House prices have appreciated as much in the UK as America. There are similarities. The UK will be affected."

The billionaire philanthropist also called for a huge increase of regulation and oversight over financial markets, whose excessive freedoms had caused "not a normal crisis but the end of an era".

Angel Gurría, head of the OECD, said the Fed had been right to cut interest rates but disagreed with Soros that a recession was inevitable. "Growth will be around zero but I don't think it is worse than that," he said. "We are much less vulnerable because economies are stronger than in the past."

He still thought the Bank of England and ECB should worry less about inflation and more about growth and therefore cut interest rates. Inflation was largely caused by rising oil and food prices, he said, while so-called "core" inflation was steady.

"They cannot ignore the signals coming out of the world's largest economy which warranted a 75 basis point cut from the Fed," he said. "They are not going to be isolated from what happens in the US."

Mervyn King, the Bank governor, said on Tuesday night that the UK faced the worst outlook for more than 10 years but said he remained worried about inflation. Markets read King's speech as meaning the Bank would be reluctant to reduce rates sharply from their current 5.5% level.

Gurría warned that markets were going to be a "rollercoaster". As he spoke European shares fell to their lowest levels in a year and a half. The FTSE 100 index ended down 130 points at 5,609, at which point the Dow Jones industrial average was off 162 points at 11,805.

Oil prices continued to slide too as dealers worried that a weakening US economy, which consumes a quarter of global crude production, would mean lower demand. US light crude futures dropped below $88 a barrel, down more than 12% from the all-time high of $100 hit this month.

The state of the world economy dominated discussions at the Davos meeting yesterday, with economists and business leaders divided about the outlook.

Joseph Stiglitz, former World Bank chief economist, said that the Fed was trying to solve a crisis of its own making. "What we have now are the foreseeable consequences of bad economic management," he said.

US Treasury official David McCormick insisted that the fundamentals of the US economy were strong. "While we continue to believe the US economy will grow, it will grow at a slower pace and there is no doubt downside risks have increased."